Ahead of the Curve

The lending environment is undergoing a worrying change. Funds that European direct lenders have raised but not yet deployed are at an all-time high and banks in most Western-European jurisdictions have renewed lending following years of reticence after the global financial crisis, leading to increased competition amongst lenders in the small and medium enterprise (SME) market.

UK DB deficit grows £20bn in June

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UK - The funding position of defined benefit (DB) schemes deteriorated in June for the first time since March, as the aggregate deficit of around 7,400 schemes increased by more than £20bn to £200.1bn (€233.3bn).

Figures from the Pension Protection Fund's (PPF) 7800 Index revealed over the last month the total deficit of schemes in deficit rose from £196.8bn to £215.8bn, which is more than three times the £60.3bn deficit recorded a year earlier.

The number of schemes in deficit increased to 88%, or 6,461, while the number of schemes in surplus fell to 920 with an aggregate surplus of £15.7bn - almost £2bn lower than in May - as scheme assets dropped by 1% to £771.2bn.

However, while the aggregate funding position declined over the month from £179.3bn to £200.1bn, the deficit level is still significantly lower than the peak deficit of £242bn reported in March 2009. (See earlier IPE article: DB deficit hits £242bn despite changes to data)

The PPF Index suggested the worsening of the funding levels could be attributed to the 1.3% decrease in assets following a fall in global and UK equities, while lower gilt yields in general increased liabilities by 1%.

Figures showed the liabilities of the 7,400 schemes increased in June by 1.4%, and 20.9% over the year, while the value of scheme assets fell 1% over the month and 5.5% in the year to June 2009.

In response to the data and the recent spate of scheme closures, John Ball, head of defined benefit (DB) pension consulting at Watson Wyatt, said: "If this has become the ‘summer of scheme closures' then these figures underline a root cause. Pension deficits continue to put severe pressure on company balance sheets and employers have little option but to find ways to control the ongoing costs and risks."

He also warned of the potential impact on the PPF of the large number of pension schemes carrying a deficit at a time when many sponsoring companies may find themselves in serious financial trouble.

"It wouldn't take many of these deficits to land in the PPF's lap to cause significant problems for an organisation that raises £700m a year in levies," added Ball.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com